New Law Would Centralize Teacher Retirement Account Management | Eastern North Carolina Now

   Publisher's note: The author of this fine report, Barry Smith, is a contributor to the Carolina Journal, John Hood, Publisher.

Treasurer will contract with single provider for supplemental 403(b) accounts

    RALEIGH     Changes could be coming soon for voluntary supplemental retirement plans that are set up for teachers and employees of school boards across North Carolina.

    Those supporting the changes say they would expand retirement plan options and reduce fees for teachers, while opponents say they would limit teachers' choices by squeezing out smaller companies that offer options across the state.

    The state treasurer's office is in the process of setting up a centralized supplemental retirement plan for employees of local school boards across the state. The retirement plan is called a "403(b)" plan, which is used by employees of nonprofits and government entities.

    Contributions are made pre-tax, and the plans operates much like the 401(k) plans used in the private sector. In the program, teachers contribute their own money in investment options. It is an optional retirement plan and is in addition to the state pension plan for teachers. As many as 35,000 teachers currently participate in 403(b)s, the treasurer's office estimates.

    Last year, the General Assembly passed and Gov. Bev Perdue signed into law a bill authorizing the treasurer's office to create the centralized plan. The new law authorizes the treasurer's office to select a statewide vendor for the centralized plan with the goal of leveraging lower administrative fees and enhanced services for teachers and other local school board employees.

    "This just sort of expands the menu a little bit," said Rep. Susan Fisher, D-Buncombe, who sponsored the bill.

    Chris DeGrassi, executive director of the National Tax Sheltered Accounts Association, said the new law could result in smaller, independent plan administrators being squeezed out of the market.

    "It is the state going into competition with private business where there are plenty of private-sector options available," DeGrassi said. "Is it good for the state to compete with the private market?"

    DeGrassi said that once the state plan is in place, the administrative burden placed on other providers would make it difficult for them to compete. That would lead to a monopoly in the state, he said.

    Fisher disagrees, saying that the current situation amounts to a monopoly, as each governmental unit contracts with a provider or providers independently. "Ironically, that's what's been happening," Fisher said. Adding the centralized provider is intended to open the market for other providers to participate, she said.

    "This does not take them out of the game at all," Fisher said of the current providers. "It leaves the choice up to the educators."

    Fisher noted the noncontroversial nature of the bill when it passed the General Assembly last June. The House approved the bill with three dissenting votes. The Senate passed it unanimously.

    The new law authorizes the treasurer's office to use the state procurement practices to set up a vendor to administer the approved 403(b) plan for teachers and other schools employees. Julia Vail, a spokeswoman for the treasurer's office, said in an email that the office will set up a competitive bid process to identify the state vendor in the next few months.

    Vail said that the law would allow any school system adopting the state plan to retain its existing vendors.

    "This new plan will also enable North Carolina school systems to offer a program with increased participant services, reduced participation fees, and confidence that their 403(b) plans are in compliance with IRS regulations," Vail said.